The tax return payment deadline is just over six months away, which means that you're probably starting to think about how you're going to pay your tax bill if you haven't already. Today I'm sharing some tips on how to avoid a meltdown in January and prepare for your tax bill.
Set aside money to pay your tax bill
Unlike those in employment, us freelance folk are paid without being taxed beforehand. Chances are, you're going to have to pay 20% tax on that newly paid invoice so don't make it rain just yet.
To avoid having to scrape together the money to pay your tax in January, when you're probably still feeling the post-Christmas pinch, put aside 20-30% of every payment you receive to go towards your tax bill before you do anything with it. I recommend putting it in a savings account or premium bonds.
Have a basic idea of how much tax you'll need to pay
Sure, you know that you pay 20% tax. But what about National Insurance, your Personal Allowance and going over the threshold into higher rate tax?
Don't get tripped up by forgetting about these things, know your stuff and have an idea of how much your tax bill is going to add up to. You can find out more about tax rates and thresholds here.
Don't forget about payments on account!
Payments on account are the most common unexpected cost when it comes to self-employment tax and they take a bit of getting your head around, so don't let them catch you out! I wrote an in-depth post about what you need to know here, but in short if your tax bill is over £1,000, you have to make two payments of half your last tax bill towards next year's tax bill on 31st January and 31st July.
Be organised and knowledgeable
As I said above, have an idea of how much to pay, put money aside to go towards your tax bill and be aware of the payment deadline - 31st January! - and you should be feeling cool as a cucumber when it comes to paying your tax bill. Go get that money.
How are you preparing to pay your tax bill and what are your tips for other freelancers? Let me know in the comments!
I'm a financial coach helping female business owners to to manage their money and grow fulfilling, financially sustainable businesses. If you're ready to build a business that allows you to focus on your passions and work on your own terms, click the button below to find out how I can help you.
I also create courses and resources to help female entrepreneurs to manage their business finances.